Incisive commentary from leading voices in the world of compliance

Sanctions in 2018: Watch out for new Magnitsky method targeting individuals

December was a busy month in Washington DC, chiefly because of the tax bill promoted by President Trump and his Republican colleagues in the Congress.

Its final stages were so intensely debated as to drown out almost everything else happening in the chambers of the American federal government.

Yet away from the cameras, December also saw a raft of bipartisan legislation implementing a new regulatory and sanctions regime inspired by the life and death of one man: Sergei Magnitsky.

Magnitsky, a Ukrainian accountant, was found dead of untreated pancreatitis in a squalid prison cell in Moscow in November 2009, where he had spent the previous year imprisoned without trial.

Yet his legacy has lived on, and 2018 will be a high-water mark in his posthumous influence.

Magnitsky’s involvement in Western private equity coupled with his willingness to expose corruption to the press made him, according to his American employer Bill Browder, a target of President Putin.

In response, the US Congress passed the Magnitsky Act in 2012, withholding visas from and freezing the assets of Russian officials identified by the US government as having been involved in Magnitsky’s death and other instances of corruption and human rights violations.

The provisions have evolved over time and been imitated around the world, including in the UK. Most recently, they formed the basis of one of the final bills signed by President Obama as part of the 2017 defence budget: the Global Magnitsky Human Rights Accountability Act (or ‘Global Magnitsky Act’ for short), which broadens the scope of those individuals who can be sanctioned by the US for alleged human rights abuses.

Its key feature, giving the President the ability to target individuals without sanctioning their countries tout court, “fills an important gap in the US sanctions toolkit” according to Human Rights Watch. Others go further, calling it a “paradigm shift” in human rights enforcement.

December’s implementation legislation, including the first under the Global Magnitsky Act, takes further steps in grounding this new system of individual sanctions.

President Trump’s list of sanctioned individuals is eclectic, with 13 names representing 15 nationalities from countries as far apart as the Gambia and Guatemala.

This is, obviously, not very many people.

Speaking to Vice in December, an academic specialising in targeted sanctions said: “The Trump administration has chosen to target one or two persons per country, as well as affiliated entities, rather than systematically go after a large number of individuals from a single country … This approach arguably enables the administration to make a statement, but also minimizes the possible political fallout.”

Notably, it appears to co-operate with some individuals’ home governments who have accused them of corruption: for example, one of the names on the list is Gao Yan, a former Communist Party official who has been on the run from Chinese authorities for over 15 years.

He is believed to be hiding out in Australia, a close American ally. Gao’s case is relatively uncontroversial, but Western nations might be advised to be cautious about co-operating too readily with other governments.

President Xi’s anti-corruption crusade since his rise to paramountcy in 2013 has served to consolidate his strength: an individual sanctions regime frees the hand of the State Department but also allows it to be more easily co-opted by other leaders who would hope to use the US’s diplomatic and financial power for their own gain.

In other cases, the sanctions list appears to come rather too late. Take, for example, the former President of the Gambia, Yahya Jammeh. Jammeh’s loss of (and initial refusal to concede in) the 2016 presidential election opened the door for him to be accused in absentia of corruption on an extraordinary scale.

His Gambian assets were promptly frozen and his inclusion on the Global Magnitsky Act list further restricts his freedom of action.

If the aim of the Act is to prevent corruption, it does not seem to be an especially effective means of doing so: Jammeh’s ability to loot his country during his 23 years as President had not been curtailed before and was not retrospectively altered by the Act.

However, what the Act enables is a more coherent and proactive system of worldwide financial punishments, albeit with no right to trial. Secretary of State Rex Tillerson said in a statement to the press upon the signing of Trump’s list that the provisions would lead to “tangible and significant consequences” for those engaged in corruption and human rights violations: accountability and perhaps deterrence is the goal, and implicitly prevention is a more complex, institutionalised pursuit.

The Global Magnitsky Act offers a first, ambitious effort to internationalise the harsh individual sanctions regime pioneered against Russian officials in the 2012 Magnitsky Act, attempting to – as Human Rights First put it – “send the right signal” to corrupt or abusive officials around the world.

Whether this will be enough to effect major changes in global governance remains to be seen, but it cannot hurt, and offers the State Department a subtler tool than national sanctions, which have a track record of backfiring and building support for the sanctioned regime both domestically and in the US itself.

The onus is on the State Department to use this tool responsibly and effectively in pursuit of wider democratic and liberal goals. 2018 could prove to be an important year in field-testing this new method.

The European Council has added three states to the Annex 1 list of non-cooperative jurisdictions, dubbed the EU tax blacklist, saying they have failed to make commitments at ‘a high political level’ to address issues ...

Victims of a fraud which leads them to transfer money to a con-artist are typically losing nearly £3,000 each, new figures show.
The cost of so-called authorised push payment fraud has been calculated by UK Finance, ...

Fitness instructor Ed Lumsden was trying to log in to his online bank account last week when he discovered HSBC (HSBA.L) had closed it without warning.
Lumsden, who counts British television presenter Davina McCall among ...